The Big 4 of the Oilfield Services is likely to become the Big 2, after Baker Hughes confirmed in a press release that it “has engaged in preliminary discussions with Halliburton Company regarding a potential business combination transaction.”
It is widely believed that the information was released because of action in Baker Hughes’ stock price on the leaked reports Thursday. Judging by the Baker Hughes’ response, the M&A talks are likely to be advanced as otherwise the company would deny, or not react to the rumours.
If the deal goes through, it will combine world’s second and third-largest oilfield services companies. Halliburton’s market value today stands at $45bn and Baker Hughes’ is $25bn. Analysts estimate that the two companies combined could create an entity whose market value could reach between $67bn and $75bn. This is still not as big as Schlumberger which, with the estimated value of $124bn is the world biggest oilfield service company.
In the U.S. however, the new merger will create a drilling, logistics and well services giant that would dominate the US$25 billion U.S. onshore fracking market with a 39% market share. That’s more than double the size of Schlumberger, according to Spears & Associates.
There could be problems down the line, however. Given that there are at least seven major product lines where there is overlap between the two companies, the planned merger could fall foul of the anti-trust rules, in particular the Hart-Scott-Rodino Act (HSR). The Hart-Scott-Rodino Act is an antitrust law that requires companies to file with and get the approval of the Federal Trade Commission (FTC) before they merge, to prevent business combinations that would create unfair competitive dynamics.
“The question with mergers like this is are there divestitures of submarkets that can solve the problem,” Seth Bloom, a veteran of the U.S. Department of Justice’s antitrust division told Reuters. “It’s clearly not a slam dunk to approval but it’s not automatic that you can’t get it through. You have to drill down to see what the markets are like.”
The deal is by no means finalised and the Baker Hughes press release makes a point of saying that “These discussions may or may not lead to any transaction. Baker Hughes does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required.”
Having said that, OilPro portal believes that: “If a deal is reached, an announcement could come as early as next week, and if we were betting, we’d say there is a 75% chance that it happens and a 25% chance it does not.”
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